Feds Goolsbee: Fed will return inflation to target, and can do it without a recession

Chicago Fed Pres. Richard Goolsbee is speaking and says:

  • Holding to ‘inevitability’ that job losses are needed to slow inflation risks a ‘near-term policy error.’
  • Some analysis shows inflation reaching target soon, ‘without further policy tightening’ and only a modest slowdown in growth.
  • Fed needs to be ‘extra careful’ of tying policy to historical relationships that may not hold up in the current economy.
  • Recent data, with inflation slowing without job losses, have run against past U.S. patterns.
  • Fed will return inflation to target, but has a chance to do something rare by accomplishing that without recession.
  • Evidence points to the outbreak of inflation in 2021 as largely supply-related; ignoring supply improvements is a recipe for overshooting.
  • Long-run inflation expectations are ‘well-anchored,’ can help lower inflation with ‘less economic pain’ than previously.
  • Importance of expectations and Fed credibility makes proposals to raise the inflation target from 2% ‘quite risky.’
  • Risks to the outlook include oil prices, slowdown in China, possibility of a protracted U.S. auto strike, or a disruptive government shutdown.
  • Housing will be key to continued inflation progress in the next few quarters, with the risk that rising home prices could also boost market rents.
  • Better productivity could mean long-run potential is not as low as some have feared, allowing more growth without inflation.
  • Wages typically lag prices, so short-term movements should not be used to predict inflation.

Goolsbee is a dove. He is a voting member currently.

This article was written by Greg Michalowski at www.forexlive.com. Source